Secured Transactions Flashcards
What is required to have an enforceable security interest and what are the three requirements?
Under Article 9, for a security interest to be enforceable against a debtor, the interest must attach to the collateral.
For attachment, three conditions must be met: (i) value must be given by the secured party; (ii) the debtor has rights in the collateral; and (iii) the debtor authenticated a security agreement that describes the collateral (or SP has possession or control, if applicable).
What is an after-acquired property clause?
An after-acquired property clause allows the debtor to give a security interest in future rights, and it attaches as soon as the debtor obtains an interest in the property.
What is generally required in order for a security interest to have priority?
In order to have priority, perfection of the security interest (typically by filing a financing statement) is generally necessary.
What is a PMSI?
A purchase money security interest (PMSI) is a security interest in goods that has priority over other security interests in the same goods.
It arises when a creditor sells goods to a debtor on credit and retains a security interest in those goods. It can also arise when the creditor advances funds, which are then used to purchase the goods, and the creditor reserves a security interest in those goods.
What is the priority of a PMSI in inventory?
A PMSI in inventory has priority only if: (i) the PMSI is perfected by the time the debtor receives possession of the collateral and (ii) the secured party sends an authenticated notification of the PMSI to the holder of any conflicting security interest before the debtor receives possession of the collateral.
What are the general priority rules under Article 9?
Under the priority rules of Article 9, the “first to file or perfect” rule determines priority between conflicting perfected interests.
A perfected interest has priority over an unperfected interest.
For conflicting unperfected interests, the first to attach or become effective will have priority.
What is a true lease vs. a sale with reservation of a security interest?
Article 9 applies if the substance of a transaction creates a security interest. A transaction in the form of a lease is treated as a security interest if (i) the lessee must pay consideration to the lessor for the right to possess and use the goods for the term of the lease, (ii) the payment obligation cannot be terminated by the lessee, and (iii) the lessee has an option to become the owner of the goods upon completion of the lease agreement.
What is the priority of a PMSI in goods other than inventory or livestock?
A PMSI in goods (other than inventory or livestock) prevails over all other security interests in the collateral, even if they were previously perfected, if the secured party perfects before or within 20 days after the debtor receives possession of the collateral.
How can a secured party dispose of collateral after a default?
Upon default, a SP can dispose of the collateral at a sale, which may be public or private, in order to satisfy the outstanding obligation.
The sale must be conducted in a commercially reasonable manner, and the SP is required to send an authenticated notification of disposition to the debtor (usually sent at least 10 days prior). However, notice is not required when the collateral is (i) perishable or declines speedily in value or (ii) is of a type customarily sold on a recognized market (e.g., the stock market). If a SP fails to give notice, the debtor or other SP may seek damages. Additionally, the debtor may waive notice.
Finally, as if this card wasn’t long enough, there is a rebuttable presumption that the SP is not entitled to collect a deficiency.
What is the priority between a perfected security interests and a judicial lien creditor?
In a contest between a perfected security interest and a judicial lien, a judicial lien creditor takes the collateral subject to an existing perfected security interest but generally has priority over an unperfected security interest.
